Q2 2020 MGM Growth Properties LLC Earnings Call
Good morning, and welcome to be MGM growth properties second quarter 2020, <unk> earnings conference call joining the call from the company today, Our James Stewart, Chief Executive Officer, Sandy Chen Chief Financial Officer, Mark It depends on I know because only now after the company's remarks, there will be a question.
Theres Sasha.
No because that is being recorded now I would like to turn the call over to Mr. Andy Chad.
Thanks Kate.
Good morning, Good afternoon, welcome to the MGM growth properties second quarter 2020 earnings call.
This call is being broadcast live on the Internet at MGM growth properties Dot com and we have furnish our press release on form 8-K to the FCC. This morning.
On this call will make forward looking statements under the safe Harbor provisions or the federal Securities laws.
Actual results may differ materially from those projected in the forward looking statements additional information concerning factors that could cause actual results to materially differ from these forward looking statements contained in today's press release.
And in our periodic filings with the FCC.
During the call. We will also discuss non-GAAP financial measures and talking about a performance you can find reconciliation to GAAP financial measures in the press release and Investor presentation, which are also available on our website I.
Finally, please note that this presentation is being recorded I will now turn over to James.
Thank you Andy I'd like to start off by welcoming Kt Coleman, and Chuck or having to our board of directors Gideon Chuck's diverse backgrounds in real estate and broad transactional experience will complement the existing skills far directors, what providing us with additional expertise as we continue to further drive the company's gross.
And return value to shareholders in the coming years.
Despite the current economic challenges brought by the coping 19 pandemic second quarter was a highly successful one for MGP.
On May 18, we redeemed 30.3 million over operating partnership units held by MGM resorts for 700 million in cash. This transaction was immediately double digit accretive to our run rate if at all per unit well keeping leverage below our long term pro rata target of five to five and at times.
As a result of this transaction mgms ownership in M.G.P. was reduced to 57%.
We're pleased with the execution of the redemption, which is not only financially attractive for our shareholders. It had the added benefit if simultaneously bolstering our tenants liquidity position.
There's also an additional 700 million of operating partnership units that we have agreed to redeem from MGM in cash that if exercised by them well continue to reduce their ownership level onewest strengthen their liquidity position and drive further accretion for MGP.
Our continued confidence in our company Edward Chad was demonstrated when we increased our second quarter 2020 cash dividends to an annualized rate of $1.95 per share.
This represents a 36.4% increase since our IPO the 11th dividend increase up to 17 dividends paid to date.
This raising dividends is also our second increase since it started the economic shutdown that began in March illustrating the strength of our business model throughout all types of economic cycles.
Despite these uncertain times, we remain focused on continuing to execute on our business strategies to sustainably grow our dividend.
Today, we're happy to report that almost all of our properties are currently open to the public its proper social distancing and safety protocols in place.
We are pleased by our tenants commitment to the health and safety of both their employees and guests since reopening almost all of our Las Vegas properties are operating with positive EBITDAR and high margins.
During the quarter ended in July MGM paid 100%, if it's right on time and undertook several key actions to preserve its liquidity position strengthened its balance sheet imagines cash outflows to preserve its financial flexibility is a pandemic continues to impact of business.
At the same time, our disciplined and prudent approach to the construction of our geographically balanced portfolio conservative balance sheet readily available liquidity proved to be Paramount Graham G.P. to whether the current economic situation as well our perfect rent collection record was meaningfully higher than that the traditional retail net lease.
Afterwards.
Our agenda MGM resorts has approximately $4.8 billion and liquidity at its domestic operations, providing ample access to cash to cover their estimated outflows for the foreseeable future and MGM has no debt maturities until 2022. In addition, MGM has the right to redeem $700 million worth to Bob.
The partnership units in cash as part of our agreement through February of 20 to 22.
Although their operations are of course currently being impacted mgms domestic net leverage at the end of 2019 was one of the lowest and the entire gaming industry.
MGM holds a stake in MGP valued at approximately $4.7 billion and at this time MGP is not engaged in any conversations with MGM to modify the economic terms for leases.
We continue to communicate frequently with various gaming operators and explore sale leaseback transactions that would help them generate immediate liquidity and provide them with an opportunity to replace financial debt was predictable long term leases.
The benefits of long term leases with no maturities are more apparent than ever we're confident and our ability to grow over the long term.
M. GP is especially well positioned to given our strong financial position the flexibility to creatively structure leases to find mutually beneficial solutions for both us and potential tenants in the gaming and broader hospitality and leisure industries I'll now turn it over to Andy to discuss our financial results.
Thanks, James I'll start by providing some highlights for a few items in our first.
Quarter past results.
Directly as a 188.3 million of much revenue on a GAAP basis cash rental payments received by empty DNR joint venture relating to your pro rata share were 243.5 million.
Which consists of 206.9 nice named Jim Master lease and 36.69 from our share of the joint venture Master lease.
Cash received and distribution front joint venture was 23.1 million.
Consolidated net income was 97 million.
I saw was 177.7 million or 56 cents per diluted operating partnership units.
Adjusted EBITDA was 240.39 gene expenses for the quarter.
3.79.
First quarter, our dividend increased to 48.75 cents per share, which represents $1.95 on an annualized basis.
As James mentioned, we completed the 700 million dollar redemption of operating partner speakers from MGM resorts pursuant to the 1.4 billion dollar waiver agreement.
If we permanently financed with proceeds from about 800 million dollar issuance of 405 senior notes due 2025.
The bond offering was upsized and initial offering size of 500 million due to the significant investor demand, we're able to price noted our second best interest rate in the history of the company.
This demonstrates the confidence bond investors, having our cashless. Despite these challenging times.
This transaction simultaneously allowed us to significantly reduce the level of secured debt and our capital structure.
We have no debt maturities until 2023 and maintain adequate liquidity to meet our financial commitments.
Liquidity currently stands at approximately $2 billion, consisting of over 700 million cash and cash equivalents.
And 1.15 billion a revolver capacity.
Our pro rata net leverage a 4.6 times is below our long term target of five to five and at times, providing funding flexibility for future accretive opportunities, including the redemption of the remaining 700 million operating partnership units from NGL.
The breakdown of our pro rata net leverage can be found in a newly published quarterly supplemental presentation on our website.
That I like to turn it back over to James.
Thanks, Andy.
MGP currently sits in a very enviable position, we have access to approximately $2 billion of liquidity, which is enough to runner operations and pay our current interest and dividends for about two years.
Our tenant as nearly $4.8 billion of liquidity at their domestic operations, which gives us confidence they will be able to pay the rent for the foreseeable future and we continued to pay our dividend 100% in cash as a result.
We have a leverage level amongst the lowest of any of our triple net peers and a clear path to built in FFO growth through contractual rent escalators equity redemption agreement with MGM, our right of first offer opportunities potential future transactions with other operators given all of this I also believe that there was a meaningful opportunity for us.
Tenured cap rate compression in our stock valuation.
Thank you to all of our investors for their continued support Kate I'd like to now open it up for questions.
We will now begin my question answer session to ask a question you make our star then one on your touched on.
If you are using a speakerphone please pick up your handset before part thing that Keith.
There was talk on the question Q. Please press Star then too.
The first question is from Joe Greff of JP Morgan. Please go ahead.
Hi, good morning, guys.
Hi, Joe being Dan I'd Love to hear your thoughts on anything for timing of MGM essentially redeeming the last 700 million of Opie units.
As well as your thoughts on how long before we may see transaction activity in this sector.
Redemption.
Acquisition related growth topics that are outside of your control, but one thing that.
Within your control and the Board's control is corporate structure. My real question I guess, what where are you in terms of considering moving from your Corey.
I'll see structure to a C Corp. The re subsidiary similar to most of the other triple net lease REIT peers.
Thank you.
So as it relates to redemption timing.
It is exclusively the option of MGM resorts and there's different factors I think that one would think through in terms of whether or not too.
Cause redemption to happen one is I think there's a broad view that MGP stock has been very meaningful upside to it and that that a yield that we're paying is likely to become increasingly valuable in the future as <unk> interest rates appear to be.
Staying low for some time and that the strength of our business model really will become increasingly reflected which will drive our price up on the other hand, they are completely committed to their asset light strategy and part of getting to their asset light strategy and the deconsolidation of Mg P. from the MGM financial statements is.
Yes wouldn't be wouldn't be partially accomplished through the redemption. So you have different.
Things pulling on you know the decision there.
All of which they would have to consider and that's just a long way of saying they have approximately a year and a half to complete. It went exactly is very difficult talent as sort of a balancing act that you MGM management team board will have to.
Thanks for in terms of as they think about that process as it relates to.
Broader acquisition activity there are a great deal of discussions going on.
However, the volatility, particularly in share prices makes it harder to get transactions over the goal line as well as the difficulty of figuring out what underlying cash flows and thus valuation one can really underwrite at this point in time.
You know with.
Changing protocols.
You know the ebbs and flows of the impacts of the pandemic the impact on property openings et cetera.
All of that makes steel, making much harder however.
We are we have a bond complex, which is trading at rates that if you had told me those two years ago I would have just fallen off my chair most of it trades in yields of the threes.
So our debt cost extraordinarily low.
Cost of equity is not is higher than it was but it's not particularly high. So if you look at our cost of capital versus the cost of capital of most of the operators that we talk maybe all of them. It is a pretty attractive proposition for us to be able to make you deal with them that works so that.
Component I think plays very very well into.
Future Dealmaking, although I think.
The likelihood of real dollars changing hands in exchange for assets is going to be hampered until we get some increased visibility on.
The cash flow production line and what that's going to look like going into the future [noise].
And then lastly on them so.
C Corp.
As I think everyone knows we've had some new board members joined the board and anything like that is something that needs to be carefully considered by them and so we need to take the time to sort of think through all the different impacts of a corporate change, which would be no no real impact for the shareholders, but impact you have to.
Be considered tried the board and so we're in the process of getting people informed and so they can make a thoughtful.
Decision on that process, Andy anything else.
No I think that was pretty well covered.
Thank you guys.
Your next question is from Garrett said Ryan of Wolfe Research. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question, maybe just a follow up on that last point you talked about how the cost of debt is so cheap it does that make you reconsider the five to five and a half times leverage ratio. How are you thinking about that and then if MGM were to pursue more aggressive sell down of its stake would you consider.
Taking leverage higher to fund the transaction.
Thanks, Jerry this is Andy so in terms of the cost it hadn't ROE relative to our leverage targets at the current time, we have no intention to change that's right. We've had been at the five to five at times.
For long haul and that's.
Primarily due to just providing that safety security for the investors on the balance sheet side and look just because it's low now doesn't mean when it comes to refinancing time that it stays though right. So we stand by that.
Leverage target range in terms of you know transactions redemptions and the timing.
If at all relative to our leverage I think we said from time to time that so you know if a transaction comes along and it takes our leverage slightly outside that range, but we see a quick pass back either through a smaller bite size equity offerings. The ATM or you know issuance of LP units, perhaps to two sellers.
Real estate that.
We are comfortable doing so, but we would manage that balance sheet very strictly and bring it right back into that range as quickly as we can.
Great. Thank you and then just of the unrelated follow up MGM is making a a big push on the online gaming in sports side can you just talked about how that impacts your thought process because on one hand, there maybe some cannibalization from I gaming at at the property level, but then I mean other high.
And your tenant has better coverage, including owning a 50 50 stake in what could be a valuable online business. So can you just help us think about how you're thinking about that.
[noise] I think online represents a really significant opportunity and I think when.
The dust to settle to MGM is going to be one of the real winners in that space.
Ah we see it as a positive primarily on two fronts. One I think that it will as you as you said just enhanced the business expand the customer footprint the ability that MGM has to tie there M life rewards program in to the online sports betting and gaming.
Yep, it's something that's going to be pretty powerful and I think it's going to enhance not only our coverage, but I suspect will also drive increased traffic into the casino itself.
The.
Around both the sports book and the gaming for overtime is just the customer base expands as result of having.
The app on your phone so for US. It isn't you know we I don't think it's going to be a huge needle mover in terms of our own AFFO line, but I think it provides increased security to our investors in the form of both coverage and likely increase traffic.
Andy.
No I think that was well said.
Okay. Thank you very much.
The next question is from there all the way of Green Street Advisors. Please go ahead.
Thank you.
I'm just thinking it's still too early to tell how business travel that's going to be impacted longer chair due to the pandemic and no work from home phenomenon, but as the owner.
Considerable amount of convention and trade show space have you I spent any time contemplating alternative uses about state based in the event that there would be in fact, the higher but are you said that real estate pandemic.
Andy you want to take it.
Sure.
It doesn't alternate use for us to contemplate I'm you know we can certainly you'll have those discussion with energy with MGM.
As tenant, but ultimately it's their decision to determine what's the best hi, its best use of all of the spaced a that at least from us. So.
Yeah, I think the convention calendar as MGM discussed on their call last week.
For.
Next year for the most part remains on the books Q1 cancellations are just starting but Q2 three four et cetera. You know they are still on the books and a lot of the canceled events had the move to those quarters. So I think people are meeting planners I still hopeful that there is a solution.
In a way to have their meeting still happen here in Las Vegas, and so I think there certainly are a there's still a demand I'm assuming that that we can get back to some sense normalcy here, but in the meantime, you know there. There's a press reports about you know what different things could happen.
Whether sports teams would come here or leagues and do the bubble et cetera. So there's a lot of ideas out there, but certainly a there's an execution to those and but also a long term business that.
We believe is still viable in and Jim. Please the lab in terms of the large meetings.
Event planning.
Just a follow up on that I would say there has not been a single industry that I can think of that has been.
More responsive to changing customer taste.
Then the integrated resort business and or whatever.
His son is desired by the customer the industry has been able to very very quickly.
Change or more if it's sort of positioning and buildings to make that work and so if there's any place that cat any industry that can figure out.
You know, how you reposition space and drive profitability through that space if needed. It's a gaming business. It I'd put MGM the top of the pile for that.
Skill set.
Great. Thank you bye.
<unk>.
Spencer.
Next question is from Carla stance Raleigh of Deutsche Bank. Please go ahead.
Hey, guys, thanks, and good afternoon.
Could you guys talk maybe just qualitatively about what you saw kind of in the aftermath up the closer or something from an interest perspective or a potential yield perspective.
As it pertains to obviously a lot of RBC capital during that time that rates that.
It seems were north of where you guys what the cost of capital would've been in into transaction hypothetically would have done so just talk a little bit about kind of whats on the deal.
She wants post the outbreak of the pandemic.
Sure I'll start and then Andy please jump in.
At the outset after people realize that this was not something that was just going to be a one week phenomenon or two week phenomenon, but never have conversations increased rather dramatically and the need for capital by certain.
Potential partners of ours are I think was pretty high our own cost of capital, although higher than where it is now was also quite a bit lower than there. So.
They felt like there was a reasonably good likelihood that something what happens as the government.
Stimulus programs and so on.
Sport programs for the debt markets. So on kicked in the cost of capital of almost.
Everyone, who we can think of anyone who we would deal with dropped very significantly particularly across the debt.
And I was very very available to them.
And given the speed with which one can tap the bond market, even though the lowest rated companies can tap the bond market incredibly quickly and efficiently at rates that were very low I think that filled in as the stop gap for any company that really needed capital as opposed to doing a deal with us.
That said.
I think that many of the operators as they look at their own balance sheets and cash flow producing power.
Are going to find it really interesting to do something with us and get their leverage levels back down to more.
Reasonable levels, given the future earnings power the business.
Just because we don't ours leases are very very long term incredibly predictable and will prove out to be a who are attractive option to them versus constantly being in the position of fear over having.
A piece of debt coming due where do you want to point in time and worrying that if that happens at a point in time when the market is closed you could end up financing it some really exorbitant rates Andy.
Yeah, I would add that I think in those early days a once the cost of capital and figure out there was support in the bond market for a lot of these companies and they got that liquidity a lot of the conversations were.
At the operators were turned towards operations and innovating and trying to think through how they can open their property. So the liquidity box was checked and they they've for the time being then moved onto operations and I would say even in today's environment you know a good portion of the.
In mind share of the operators in the folks that we talk to isn't operations in health and safety as employees, the guess, making sure that they are able to stay open.
Transactions I believe will come and these balance sheets will need to be rightsized, and having long term predictable leases without maturities are certainly an attractive element and I think some of the folks that about a more extensively and they look at what that means from the sale leaseback standpoint there.
There are finding sale lease back to be more and more checked.
Understood. Thank you for all that color guys and if I could just one follow up given everything that's going on and clearly.
[noise] work, a little bit lower kinda reopened maybe some of the other states where some of the properties currently do on a real estate under open how does it how does all of this change everything else is going on quite quite frankly, the factors into what changed your approach to the timing of thinking about the EPS yet.
Thanks.
[noise] you speak it to the right of first offer correct specific okay, yes, there certainly in terms of Massachusetts.
It's a little bit slower to open.
You know the EBITDA ramp there was you know just starting to get take hold prior to the shutdowns. So we'll we'll certainly want to evaluate.
Other property opens a under the new conditions and how it continues to ramp at the end of the day for us.
Going to go into a master lease and so as a evaluation of MGM as a tenant not a single property lease and I think this environment shows.
Highlights for an answer at least relative to single property leases, which as you.
He had a single property lease on something anything that is the one that keeps you up at night.
But I think the time that will certainly be extended here given the circumstances.
Great. Thanks, Thanks, guys.
Uh huh.
The next question is from Steve Sakwa Evercore. Please go ahead.
Hi, Thanks, I guess good morning out there I guess, that's kind of follow up on that last question I guess James.
I guess, what lessons have you sort of learn I know at the beginning of this people were sort of pushing you to kind of diversified you know away from your one tenant had to have other tenants and I'm just sort of trying to think how you guys have thought about that in and you know kind of the pros and cons of of having other structures and other leases and.
Just you know what would you are not do kind of moving forward.
Well I.
I think if ever there has been an environment that shows the benefits of having a very strong tenant. It's this was a it would be if you asked me a year ago, what would be my concerns for the 2020 year, having every property shut down for multiple weeks would not even has popped into my.
In mind as possibility and yet you know that is what occurred.
And the.
Decision to go with with US to go with the tenant in every scenario that we could it had the best credit profile on the business is really showing out to be very very positive for US right now again, and I know I've said it before but we've collected 100% of the rent in full haven't modified any economic terms with the lease.
Yeah, that's all because we have a very strong tenant had we made the decision to diversify our tenant base at an earlier time.
With almost no exceptions other than may be one in the integrated resort business. The tenants have a credit profile that is.
Not as strong as Mgms and I think those would be the ones that we would be the most worried about so I think it's proven out to be a very wise decision in hindsight.
To go with the tenant that has the best credit profile and the most instead of to pay the rent, which in our cases EMS yeah.
As we go forward, we evaluate every transaction on a standalone basis and the evaluation takes many factors into consideration one being the quality of the asset and does it have the enduring value to pay the rent or generate cash flows for 30 straight years, which is the term generally have a leased with us.
The other is the ability of those operations on just a standalone basis to generate that income and then is the tenant and entity that we think has the balance sheet and the earnings power and so one as well as just the.
They do we have to trusted them to pay the rent over that period of time comes second since so all of those things come into an analysis and to the extent that we're confident that the tenants that eight tenant is going to pay the rent and that the asset itself will have value.
You know that's it and it's accretive to our AFFO on a auto.
Non complex leveraging basis, that's a transaction we should do each one is evaluated on its own and for anytime or we have the ability to choose attended we want to choose the one that we think is the most able and the most desirous of paying direct.
And I guess, maybe sort of a derivative follow up on that would just be it in terms of other product types I know you've sort of talk broadly about potentially you know doing things outside the gaming World has this pandemic.
The way you see in other sectors, maybe be impact you kind of change your thoughts about you know broadening than that in terms of other areas to go into whether it's a traditional hotels are conventions or waterparks or anything like that but that's sort of change your view at all.
It's its been very interesting certainly to see and I think.
It has not only because it gets back to just one of our you know the fundamental ways. We look at a transaction, where if we think something can enhance our CFO line without adding.
Risk to the overall portfolio and thus increased the dividend that's something we should do whether that be.
You know adjacent space or in the gaming space, but if there is some one thing that is really I think been highlighted through its very difficult economic times. It's the fundamental strength of the gaming business. It has been really gratifying to see the.
The ability of the tenants in that in that industry to be able to adjust extremely quickly to a very quick changing economic environment.
Drive their portfolios to a reasonably high levels of success when you consider the backdrop.
And and basically with all of the.
Recall that have any kind of meaningful gaming tentative exposure.
Have you got 100% virtually 100% of the rent get paid for all of them, it's really highlighted the strength of the business, which.
As.
Very gratifying for us Andy anything else you would think on that.
The only thing I'd add is just as.
We look at the financial wherewithal of companies, whether its gaming or or otherwise you know and an added an important factor now it's just access to capital right now how did they perform in terms of their ability to it adapts bond markets levers on markets equity markets.
And what kind of liquidity options that have cash on hand revolver availability things like that.
Across all spaces, and obviously the gaming space showed that they had that availability in access in space. So that's that's a.
Oh put more emphasis on the importance of the strength of 10.
Got it that's it for me thanks.
Thanks, Steve.
Your next question from Shaun Kelley of Bank of America. Please go ahead.
Hi, Good morning, James and Andy I'm just ER.
Q2 questions for me and one is sort of tackle this from a few different perspectives, but.
Yes on the balance of the portfolio in Las Vegas, which obviously many of the assets skew towards today and then you know what what you're doing on the regional side, especially in light of the fundamentals. So any kind of preference I mean, obviously everything is gonna be underwritten you know based on the individual facts and circumstances, but kind of anything.
Just provide about maybe your own surprise in your own experiences about kind of the balance of what we've seen fundamentally play out between Las Vegas, and regional and how that might impact your underwriting going forward.
[noise] it's a.
Well, it's certainly been a very.
Amazing to see all the different job relative performance is here and there you know we sit with a portfolio that is about a little more than 50% regional and a little less than that in Las Vegas, which I think it's going to prove out to be very nice mix Las Vegas Cisco.
Currently a little slower to recover given increased historical group business component versus the drive to regional market, but these things have a tendency to balance out and come back to historical trends. So.
The the the margins at all the properties are very enhanced the ability to operate incredibly efficiently, particularly things come back.
I think is gonna be really pronounced and I think that things will come back into balance, but it's going to take a little bit more time for the Las Vegas market versus the regional market I wouldn't I think our portfolio mix, where it sits right now have a little more than half regional or you know roughly 50 50 is going to prove out to be a pretty attractive one because well.
Get some of the benefits as a Las Vegas starts to return to normalcy and maybe the regions trail off and right now you know sitting with half the properties in the regions, it's pretty good position to be in Andy.
Yeah, I think I think you said it all James.
Terrific.
And then sort of again a bit of a follow up from from prior question. Maybe just asked slightly differently. So we talked about different property types sort of maybe different industry verticals, but what about just on kind of slightly less traditional ways to invest in gaming. So those would be things like investing directly in the case.
Capital stack or you know like so, possibly making loans to people, who you know might need help out there you know even if they are shorter in duration, then but they might be opportunistic.
Or things like you know, we saw a kind of capex financing you know to build a project, but obviously with that wasn't enhance rent structure. You know kind of come out there are those types of things intriguing to you or there was you know opportunity you'd underwrite are you you hobby on a baseline amount of capital you want to deploy a like a like a size.
Requirement that you need to make it worth the time and effort just kind of how are you thinking about those.
You want to take me.
Yeah, I'll take a James and certainly those of transactions that we've we've looked at in the past and continue to look at yes. It does get to be a size level that that makes sense for us we don't have a specific number that.
We.
Have or pick and but we evaluate each transaction as they come.
And we looked at different structures, and obviously with the Capex type transaction, we did it on park MGM.
A loan transaction those are things that we can do and we have looked at in the past, but we haven't.
Transacted on mainly because we haven't needed to do it and that structure. Most times, it's a due to structuring that what's required to kind of go down that route.
And for US we have a tenant base that is.
Extremely safe secure and look at MGM liquidity position.
The cash on hand, there, but there their ability to cover their costs are pretty significant so with MGM. We haven't had to explore those avenues, because we don't need and with other tenants were more than happy to discuss those things than we have in the past and you know what the preferences are regular way transaction, but certainly we are.
We have the availability in and knowledge to do some of those other structures as well.
Thank you Beth.
Thanks, Sean.
Your next question is from Barry Jonas True Securities. Please go ahead.
Hey, guys.
Wanted to ask about M&A another angle.
'cause the pool of potential Opco partners that you would work with widened.
Here.
It hasn't narrowed.
It would either be the same or potentially a little bit wider I think could the performance of this space through this period of time.
And the.
The potential for other people to get into business through.
Restructuring of no really.
Not restructuring in a balance sheet way restructuring if someone's portfolio like Eldorado has done with I'm talking about a potential divestitures. There either have done are doing in order to affect the merger is going to permit others, who have looked at the industry and now are anxious to get in to participate so.
So if anything I would say, it's likely a little bit larger than what it was certainly isn't narrower.
Great. That's really helpful. And then just a second question you know look we're seeing instances of some properties not reopening and markets, which notably includes Vegas.
We'll see more contraction in gaming supply and how does that influence your strategy if at all.
Andy.
I'm sure you know in terms of the properties are not reopen I.
In Vegas in particular, I see I think that's.
On one hand demand driven I think there's other opportunities that are being or have been.
Evaluated and so this was certain properties have been reserved from opening but I do believe that some of those properties are not yet opened are taking reservations in in in the short term here and that as was discussed on the various operator calls that you know as properties opened its not cannibalization, but it's the growth in the bid.
And is too.
Satisfy that demand.
So for the short term with properties closed I don't think that's a any sign that there would be a contraction of supply I think the the industry is hopeful that you know that demand will come back at some point whether its.
You know.
Two of next year or summer of next year at some point you know that demand will return and those properties will be.
Fully utilized so in the regions, obviously, there's still certain properties that are close but those are.
State or regulatory decisions that a you know haven't allow for their openings and so I think that will come in that demand. Obviously as you see an across the operators that have reported on regional that demands there.
Great. Thanks, Thanks, Eddie Thanks James.
Really.
Hi, My question.
Next question is from Jay Kornreich NBC. Please go ahead.
Hi, Thanks, very much just in your opening comments you mention we still believe cap rate compression will occur. So just thinking big picture that part of the story with a focal point creeping back what do you think they happen to buyers not only come back or people heard an asset class and of course, the called for several months, but even.
Not lower cap rate and before the end done it.
I think what.
I think that what will need to happen would be for the industry. The integrated resort read industry to get through this intact, it's out any kind of major issues going on with there.
Ability to generate a AFFO witness dividends.
And I think as we get through to the other side of the.
Extreme business impact of this pandemic.
That people are going to look at the performance of us and our other colleagues in the business, they're going to compare it to the performance of.
Other retail categories other triple nets. Other hotel rates, you know Oh leisure reads and so on and they're going to be hard pressed to say that this structure and industry.
Isn't one which has proven itself not only able to grow more quickly, but able to grow them a more securely as well and that we'll have us generate an inflow of investor capital away from some of these other spaces and into ours.
Thus compressing the cap rate.
Okay I appreciate that and and then one other question just in terms of MGM Springfield as MGM is seeking the asset light strategy is there any likelihood they would try to sell that asset for but do you need further opie units.
I think it's probably more of a question for MGM, although I think that ER.
You know I think the timing of both of those different things will be driven by their own.
Needs in goals I wouldn't really.
Think of those two was tied together it anyway.
Okay, all right that's it for me thanks very much.
Your next question is from Thomas Allen of Morgan Stanley. Please go ahead.
Thanks, I'm just one for me Kinda talk show throughout your life I think you're under the dividend strategy. Thank you.
Sure.
In terms of the dividend.
We continue to pay out around 80%. This these last couple of quarters, the elevated given the changing share counts due to the redemption as well as the issue is back in Q1, but on a run rate basis, we're comfortable in that range.
You know cross than at least space, a payout range anywhere from the mid Sixtys to the mid Eightys and.
For those other companies that we sample from that range.
You know they have had experiences of the rents not being collected and so given that our rents are 100% collected I'm. You know, we can being couldn't be more comfortable at the high end of the range given our cash those are secure.
Relative to the dividend payments and so you know we're comfortable where we are but we evaluate every quarter and we just because there was their board before and those dividends are approved.
Okay. Thank you.
Ecommerce.
Your next question is from John Dhaka of Ladenburg Thalmann. Please go ahead.
Good morning.
John One that's me about.
Well MGM has no real liquidity based need to renegotiate internationally, but is there anything opportunity here given some of the volatility around Vega.
And a combination of fat you have variable in the kind of continued component the least coming into effect in 2022 to kind of reach a meaningful transaction that you know.
And maybe makes those rental stream steadier going forward.
Provide some relief to end GM or or any other kind of negotiation. There I mean, there's something maybe strategic you guys could both come to on the lease front.
There's certainly is to the extent that are there are things that we wanted to clean up or change that were perceived as a you know a win win just like in any transaction right. If there's something if there's something that both parties want to do and it's beneficial then.
They'll likely do it for us it would be not driven as you mentioned at the beginning of the question not driven by any meaningful liquidity need to our need for.
You know some kind of a relief that you see in so many other businesses, but but would be driven only from.
Both parties desire or willingness to engage in such a deal. So the answer is yes, there's always something available like that but.
There isn't any.
Immediate driving force to bring the parties to the table to.
You know make a change in today theres been no discussions on changing any economically star.
Okay.
No I want everything.
Okay.
And you mentioned earlier on the call the you know.
The value, having a master lease in place I guess, if you look out on the acquisition environment, what kind of cap rate premium would you be looking for kind of broadly if you were going to do a single asset deal I mean, especially given there seems like there's some momentum from some operators to do some transactions on the strip and that's kind of where you'd get a one off deals.
It really moved the needle for.
For MGP.
Just to clarify I think from mass release to us more valuable than than single single property lease and so there's a for single asset deal that probably will be discount on what that range would be right now I didnt fully dependent on the tenants credit quality their financial wherewithal, what kind of lease we structure.
What level of rent.
Relative to past and potential current and future performance.
So those are things that we'd evaluate.
Deal by deal.
[laughter] design it was.
Higher cap rate kind of low and multiple but yes. It sure all things being equal I guess me I know, it's a little bit depend deal the deal, but if you were all things being equal what's kind of the broad premium you would you would need or higher cap rate you would need to do a deal.
That so for us to negotiate and so I'm not going to put that out there the public to me.
Understood. That's it for me thanks very much.
Thanks, John.
Your next question is from Nick Yulico of Scotiabank. Please go ahead.
Hey, good morning, scrapping in a song Nick.
James This is actually kind of a follow up to John's question, but in terms of the sale leaseback discussions that you pad or been having given that might be too difficult to underwrite. Currently are those generally single asset discussions or is there the potential for more comprehensive master leases and looking for any color on the potential structure or volume.
Deals being discussed would be appreciated.
[laughter].
It is for.
[laughter], a broad set of potential alternative so one of the things that.
As I think been generated maybe <unk> or accelerated maybe a little bit from this current period of time is.
[laughter] the willingness of of I think more of the operator parties to engage in discussions around very creative solutions around things, So I would say that.
The potential volumes have been pretty wouldn't been would be pretty significant most of the discussions are around either a large asset or more than one asset, but it's really.
A broad set of potential alternatives, we're talking about here that it's Ben.
Really too hard to put up you know of direct point on as to what it would be.
Okay, That's fair and just I get the follow up on that what do you need to see from an operating metric or underwriting perspective, because before becoming more comfortable with potential acquisitions.
I think we'd need to have a stability on sort of the governmental or regulatory front to know.
You know what the rules of the game are going forward as well as predictability as to the casual generating power of the asset or assets and attend the what are the things that I think we were very adept at.
Historically is being able to predict within a pretty tight margin.
How much cash flow and asset would be able to generate.
And make a good prediction, even with some meaningful.
Change potential to that assets, such as new competition or regulatory change or.
You know things like that being able to underwrite thoughtfully and be pretty good at figuring out what the EBITDA cash flow generated power, but asset would be right now it's not so much that the scale of knowing that is limited because there's other barriers put in place which affected such.
As capacity constraints issued by a stage or gaming control board and so there would be it meaning the facilities have the inability to meet the demand that's out there which is a very unusual circumstance to be in so I think what has to happen is a we have to know.
Sort of what that with some degree of certainty how the.
Governmental authorities are going to be.
Operating sort of going forward with some degree of certainty, which it does then allows us to I think underwrite pretty quickly the ultimate EBITDA and cash flow generating power the asset at which point you know we.
Can assess what that's worth to Washington, if that's going to be something that can help us.
Transact on in and sustainably grow our AFFO and dividend.
Okay. Thank you appreciate the color.
Sure.
The next question is from me throws of Citi. Please go ahead.
Hi, Thanks.
I wanted to ask you you've talked a.
A few times on on these calls about valuation discount relative to other triple net in an expectation that cap rates for gaming will compress it, particularly coming out of it. So you know given that you're at a 20, 20% discount to consensus anything you're at 4.6 times less.
Rich According to your Jack that you filed today would you consider buying back stock here before that kinda compression starts took place and presumably your stock price because higher.
Well.
We we <unk> in a sense, we are through the redemption agreement with MGM.
So we bought back in a sale equity, it's not technically sockets units, but 700 million, which generated double digit after FFO accretion and still has a sitting with a four six debt to EBITDA level and we have another 700 that we have agreed to with them to repurchase if they.
Put it to us over the next year and Uh Huh, So I think that.
That is likely going to be.
How are we would accomplish such a thing versus going out into the open market that said, we evaluate our own position.
I want to basically daily basis as to what we want to do but I think that the redemption is how we would accomplish I'm sort of taking advantage I think of.
Over the long term trends in what we think will happen to the stock.
Okay, and even know I'm sort of an open market transactions.
Unlikely.
Okay that was it for me thanks.
Expense.
Your next question is from Robin Farley of easy. Please go ahead.
Great. Thanks, two questions I'm, most my questions have been answered, but just circling back on.
Future transactions, M&A, and I've talked about escalators being tied to revenue could be hurt by operators that are kind of now reducing the lower margin revenue on profitable parts of their revenue.
I'm looking had a little too much here, but if anything I would expect that as revenues come back the lower margin, rather it's going to come back to because it's a function.
Competition, I guess I'm wondering.
Your discussions with potential.
That's a new tenants, how you're thinking about.
Escalators based on.
Thanks.
Andy.
Yet are generally speaking the our discussions in terms of potential new leases look more like the.
Mandalay MGM Grand lease or does not have any revenue ties to the escalator.
The revenue ties for regional Master lease that remain a only on the 78 million out of the 828 million.
Our rent knutsen based on a five year average or escalator next April is fully contractual there's no tests for the next April.
2% escalators, so we've oh.
We'd like to leaves kind of that performance.
Escalator or performance participation in gaming to the operators and Ah that's generally how we'd love to transactions.
Yeah.
Maybe last question as you know and discussion for new leases.
To this discussions now include.
Lease breaks for things like mandated closings or things that maybe haven't been anticipated. When you know previously as leases were being done in this industry.
It seems likely that that would be part of the discussion. So kind of wondering if is that you know for MVP and other Reits do you kind of lose that that coverage of risk. If those types of lease breaks are included.
Without getting too much into the detail or no for us to put multiple billions of dollars of capital to work on which we pay obviously an interest rate if to the extent that we borrow that capital and for US the cost of equity isn't a theoretical inverse of our P.E. or something like that.
There it is a hard cash dividends that we have to pay so any deal that we underwrite you know we have to make sure that one of the fundamental question at the end of the day is.
The tenant going to pay the read through the lease term so we have real cash.
Cash requirements on that capital put out and you know minimizing the risk around that factor is the key point of what we do when.
You don't need in return for providing the operator with multiple billions of dollars had a pretty good.
Multiple or cap rate in exchange for the real property.
Great. Thank you.
Thanks Robin.
This concludes our question and answer session I would like to turn the conference back over to James Stewart for closing remark.
Thank you Kate I'd like to thank all our investors and the financial community for continue for your continued support and look forward to talking to you next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.